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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1386 BEULAH ROAD, BUILDING 801
PITTSBURGH, PENNSYLVANIA 15235
(Address of principal executive offices) (Zip Code)
412-243-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of June 9, 2004, there were 10,900,330 shares of the registrant's common
stock outstanding.
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of April 30, 2004 (unaudited) and January 31, 2004 3
(b) Consolidated Statements of Operations for the Three Months Ended April 30, 2004 and 2003 (unaudited) 4
(c) Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2004 and 2003 (unaudited) 5
(e) Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Purchases of Equity Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature and Certification 15
2
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, JANUARY 31,
2004 2004
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 14,000 $ 49,000
Accounts receivable - net 11,098,000 11,057,000
Costs and estimated earnings in excess of billings on uncompleted contracts 4,022,000 3,327,000
Inventory 612,000 514,000
Other current assets 1,110,000 250,000
------------ ------------
TOTAL CURRENT ASSETS 16,856,000 15,197,000
PROPERTY, PLANT AND EQUIPMENT 7,785,000 7,806,000
Less: accumulated depreciation (6,869,000) (6,882,000)
------------ ------------
916,000 924,000
GOODWILL 1,035,000 714,000
OTHER ASSETS 354,000 348,000
------------ ------------
TOTAL ASSETS $ 19,161,000 $ 17,183,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,012,000 $ 3,810,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,372,000 1,449,000
Current portion of long-term debt 377,000 401,000
Accrued liabilities 2,039,000 1,328,000
------------ ------------
TOTAL CURRENT LIABILITIES 7,800,000 6,988,000
LONG-TERM DEBT 5,698,000 5,306,000
------------ ------------
TOTAL LIABILITIES 13,498,000 12,294,000
MINORITY INTEREST (22,000) (20,000)
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock - 14,000
Common stock 216,000 189,000
Additional paid-in capital 8,693,000 8,111,000
Deferred compensation (1,000) (6,000)
(Deficit) retained earnings (3,185,000) (3,361,000)
Less treasury stock (38,000) (38,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,685,000 4,909,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,161,000 $ 17,183,000
============ ============
See accompanying notes to consolidated financial statements.
3
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED APRIL 30,
----------------------------
2004 2003
------------ ------------
CONTRACT REVENUE $ 10,902,000 $ 8,366,000
CONTRACT COSTS 9,170,000 6,697,000
------------ ------------
Gross margin 1,732,000 1,669,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,552,000 1,343,000
------------ ------------
Income from operations 180,000 326,000
OTHER INCOME (EXPENSE):
Interest expense (89,000) (97,000)
Gain on sale of fixed assets 110,000 -
Interest and other income 3,000 27,000
------------ ------------
24,000 (70,000)
------------ ------------
Income before minority interest and income taxes 204,000 256,000
INCOME TAX PROVISION (17,000) (30,000)
MINORITY INTEREST 2,000 1,000
------------ ------------
NET INCOME $ 189,000 $ 227,000
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.02 $ 0.02
============ ============
DILUTIVE $ 0.02 $ 0.02
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 10,297,000 9,372,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS OUTSTANDING 1,195,000 35,000
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER SHARE CALCULATION 11,492,000 9,407,000
============ ============
See accompanying notes to consolidated financial statements.
4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED APRIL 30,
--------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 189,000 $ 227,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH:
Depreciation and amortization 201,000 238,000
Gain on sale of fixed assets (110,000) -
Stock based compensation 5,000 5,000
Minority interest (2,000) (1,000)
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable (41,000) (408,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (695,000) 675,000
Inventory (68,000) (33,000)
Other current assets (145,000) 58,000
Accounts payable 202,000 (1,147,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts (77,000) 427,000
Accrued liabilities (206,000) 510,000
----------- -----------
(1,030,000) 82,000
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (747,000) 551,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (99,000) (40,000)
Proceeds from sale of fixed assets 131,000 -
Acquisition of businesses (130,000) (133,000)
(Increase) Decrease in other assets (10,000) 8,000
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (108,000) (165,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement of common stock 498,000 -
Proceeds from debt 500,000 -
Exercise of stock options 37,000 -
Redemption of preferred stock (13,000) -
Principal payments on debt (202,000) (370,000)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 820,000 (370,000)
----------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments (35,000) 16,000
Cash and Short-Term Investments, Beginning of Period 49,000 38,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 14,000 $ 54,000
=========== ===========
See accompanying notes to consolidated financial statements.
5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 2004
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation") and its wholly-owned subsidiaries. In the quarter ending April
30, 2002, the Corporation formed IAQ Training Institute ("IAQ venture") a 50/50
joint venture to provide training in mold awareness and remediation.
The Condensed Consolidated Financial Statements as of and for the three month
periods ended April 30, 2004 and 2003 are unaudited and are presented pursuant
to the rules and regulations of the Securities and Exchange Commission
("SEC"). Accordingly, those condensed consolidated financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended January 31, 2004 dated April 23, 2004. In the opinion of management,
the accompanying condensed consolidated financial statements reflect all
adjustments (which are of a recurring nature) necessary for the fair statement
of the results for the interim periods.
Due to variations in the construction industry, the results of operation for
any interim period are not necessarily indicative of the results expected for
the full fiscal year.
NOTE 2 - FEDERAL INCOME TAXES
No federal income tax has been provided for the three months ended April 30,
2004 due to the existence of unused net operating loss carryforwards. A state
income tax provision was made in the current and prior year periods due to
income in the current and prior year.
Income taxes paid by the Corporation for the three months ended April 30, 2004
and 2003 totaled approximately $36,000 and $25,000, respectively.
NOTE 3 - LINE OF CREDIT
On August 3, 2000, the Corporation closed on a $4.7 million credit facility with
Sky Bank, an Ohio banking association, consisting of a 3-year $3 million
revolving line of credit, a 5-year $1 million equipment note, a 15-year $0.4
million mortgage and a 5-year $0.3 million commitment for future equipment
financing. The new financing repaid all of the Company's existing debt.
The line of credit, equipment note and commitment for future equipment financing
are at an interest rate of prime plus 1% with financial covenant incentives
which may reduce the interest rate to either prime plus 1/2% or prime. The
mortgage is at an interest rate of 9.15% fixed for three years and is then
adjusted to 2.75% above the 3-year Treasury Index every three years. The Chief
Executive Officer of the Corporation provided a limited personal guarantee for
the credit facility.
In November 2000, Sky Bank approved a $1.5 million increase in the line of
credit to $4.5 million to fund the acquisition of Tri-State Restorations, Inc.
("Tri-State"), an asbestos abatement and demolition company in California.
Additionally, Sky Bank increased the commitment for future equipment financing
by $0.3 million to $0.6 million. In April 2001 and June 2001, the Company
borrowed $273,000 and $283,000, respectively, against the commitment for future
equipment financing to fund the fixed asset portion of the Tri-State acquisition
and to fund other equipment purchases. In August 2001, the remaining $44,000 was
borrowed against the commitment for future equipment financing to fund equipment
purchases. The acquisition of Tri-State closed on June 1, 2001.
On February 28, 2003 Sky Bank increased the line of credit by $600,000 to $5.1
million for a four-month period. The availability on the line of credit was
reduced to $4.5 million on July 1, 2003.
In July 2003 Sky Bank approved a permanent $500,000 increase in the Company's
line of credit to $5 million and in January 2004 Sky Bank approved a permanent
$500,000 increase in the Company's line of credit to $5.5 million,
6
In April 2004 Sky Bank extended the maturity date on the line of credit until
June 6, 2006.
On April 30, 2004, the balance on the line of credit was $5,200,000 with an
unused availability of $300,000.
The Corporation paid interest costs totaling approximately $116,000 and $123,000
during the three months ended April 30, 2004 and 2003, respectively.
NOTE 4 - PREFERRED STOCK
In March 2004 in conjunction with the private placement of the Company's common
stock, as discussed in Note 7, the remaining 6,000 shares of preferred stock
were converted into 24,000 shares Common Stock with the accrued but unpaid
dividends paid in cash.
NOTE 5 - NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE THREE MONTHS
ENDED APRIL 30,
2004 2003
----------- -----------
NUMERATOR:
Net Income $ 189,000 $ 227,000
Preferred stock dividends - (1,000)
----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 189,000 226,000
Effect of dilutive securities:
Preferred stock dividends - 1,000
----------- -----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 189,000 $ 227,000
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 10,297,000 9,372,000
Effect of dilutive securities:
Convertible Preferred Stock - 29,000
Warrants 122,000 -
Employee Stock Options 1,073,000 6,000
----------- -----------
1,195,000 35,000
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 11,492,000 9,407,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.02 $ 0.02
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.02 $ 0.02
=========== ===========
NOTE 6 - STOCK OPTIONS
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles
7
of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period.
FOR THE THREE MONTHS
ENDED APRIL 30,
2004 2003
---------- -----------
Net income, as reported $ 189,000 $ 227,000
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards net of
related tax effects - (13,000)
---------- -----------
Pro forma net income $ 189,000 $ 214,000
========== ===========
Earnings per share:
Basic-as reported $ 0.02 $ 0.02
========== ===========
Basic-pro forma $ 0.02 $ 0.02
========== ===========
Diluted-as reported $ 0.02 $ 0.02
========== ===========
Diluted-pro forma $ 0.02 $ 0.02
========== ===========
No stock options have been issued in the current year.
NOTE 7 - PRIVATE PLACEMENT OF SECURITIES
On March 4, 2004 the Corporation closed on a private placement transaction
pursuant to which it sold 1,250,000 shares of Common Stock, (the "Shares"), to
Barron Partners, LP (the "Investor") for an aggregate purchase price of
$500,000. In addition, the Corporation issued two warrants to the Investor
exercisable for shares of its Common Stock (the "Warrants"). The Shares and the
Warrants were issued in a private placement transaction pursuant to Section 4(2)
and Regulation D under the Securities Act of 1933, as amended. Offset against
the proceeds is $2,000 of costs incurred in conjunction with the private
placement transaction. The Company expects that this amount will increase in the
second quarter as additional costs are processed and the cost of the
registration, discussed in the fourth paragraph of this note, is incurred.
The First Warrant provides the Investor the right to purchase up to 1,500,000
shares of the Corporation's Common Stock. The First Warrant has an exercise
price of $0.80 per share resulting in proceeds of $1,200,000 to the Company upon
its full exercise and expires five years from the date of issuance. The
Corporation may require the Investor to exercise the First Warrant in full at
any time until December 4, 2005, if the average price of the Corporation's
Common Stock exceeds $1.20 for ten consecutive trading days and the Corporation
has a Registration Statement effective during the same ten consecutive trading
days. The warrant holder may exercise through a cashless net exercise procedure
after March 4, 2005 if the shares underlying the warrant are either not subject
to an effective registration statement or, if subject to a registration
statement, during a suspension of the registration statement.
The Second Warrant provides the Investor the right to purchase up to 2,000,000
shares of the Corporation's Common Stock. The Second Warrant has an exercise
price of $1.60 per share resulting in proceeds of $3,200,000 to the Corporation
upon its full exercise and expires five years from the date of issuance. The
Corporation may require the Investor to exercise the Second Warrant in full at
any time until December 4, 2005 if the average price of the Corporation's Common
Stock exceeds $2.40 for ten consecutive trading days and the Corporation has a
Registration Statement effective during the same ten consecutive trading days.
The warrant holder may exercise through a cashless net exercise procedure after
March 4, 2005 if the shares underlying the warrant are either not subject to an
effective registration statement or, if subject to a registration statement,
8
during a suspension of the registration statement.
In connection with these transactions, the Corporation and the Investor entered
into a Registration Rights Agreement. Under this agreement, the Corporation is
required to file within ninety (90) days of closing a registration statement
with the U.S. Securities and Exchange Commission for the purpose of registering
the resale of the Shares and the shares of Common Stock underlying the Warrants.
The Company expects that the registration statement will be declared effective
by the U.S. Securities and Exchange Commission in June 2004.
The Corporation intends to utilize the proceeds from the sale of its Common
Stock for general business purposes and to fund its acquisition strategy.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The previous discussion and other sections of this Form 10-Q contain
forward-looking statements that have been made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, estimates and projections about
our industry, management's beliefs and certain assumptions made by management.
Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "may," and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and actual actions or results may differ materially from those
stated herein. These statements are subject to certain risks, uncertainties and
assumptions that are difficult to predict. The Company undertakes no obligation
to update publicly any forward-looking statements as a result of new
information, future events or otherwise, unless required by law. Readers should,
however, carefully review the risk factors included in other reports or
documents filed by the Company from time to time with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2004 AND 2003
During the three months ended April 30, 2004 ("Fiscal 2005"), the Corporation's
contract revenues increased to $10.9 million compared to $8.4 million in the
three months ended April 30, 2003 ("Fiscal 2004"). The increase was due a
significant increase in contract activity at our Los Angeles, Pittsburgh and Ft.
Lauderdale offices and in part to increased revenues from mold remediation.
The Corporation's gross margin increased to $1.73 million in the first quarter
of fiscal 2005 compared to $1.67 million in the first quarter of fiscal 2004.
The increase in gross margin is due to a higher volume of work offset in part by
negative contract adjustments of $0.3 million primarily at our New York and Los
Angeles offices.
Selling, general and administrative expenses increased to $1.55 million in the
current fiscal quarter as compared to $1.34 million in the three months April
30, 2003. This increase was due in part to the addition of the Kleen-All and
PT&L operations acquired in the first quarter of the current fiscal quarter and
higher insurance costs.
The Corporation reported income from operations of $0.18 million for the three
months ended April 30, 2004 compared to income from operations of $0.33 million
for the three months ended April 30, 2003 as a direct result of the factors
discussed above.
Interest expense decreased to $0.09 million in the current quarter as compared
the $0.10 million in the same quarter of a year ago as the effect of decreases
in the prime rate of interest to which a majority of the Corporations borrowings
are tied, more than offset the increase in borrowings on the line of credit.
The current fiscal period other income included a $0.11 million gain from the
sale of fixed assets as the Company sold equipment that was currently not being
utilized.
During the quarters ended April 30, 2004 and 2003, the Corporation made no
provision for federal income taxes due to the utilization of net operating loss
carryforwards for financial reporting purposes. State income tax provisions of
$0.02 million and $0.03 million were made in the current and prior years fiscal
quarter, respectively.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended April 30, 2004, the Corporation's cash decreased
by $0.03 million to $0.01 million.
The decrease in cash and short-term investments during the first three months of
fiscal 2005 is attributable to cash outflows from operations of $0.75 million
and cash outflows of $0.11 million associated with investing activities. These
cash outflows were partially offset by $0.82 million of cash inflows associated
with financing activities.
10
Cash utilized by operating activities totaled $0.75 million in the three months
ended April 30, 2004. Cash outflows included the $0.11 million gain on the sale
of fixed assets, a $0.04 million increase in accounts receivable, a $0.7 million
increase in costs and estimated earnings in excess of billings on uncompleted
contracts, a $0.07 million increase in inventories, a $0.15 million increase in
other current assets, a $0.08 million decrease in billings in excess of costs
and estimated earnings on uncompleted contracts, and a $0.21 million decrease in
accrued liabilities related to the timing of payments. These cash outflows were
partially offset by cash inflows including $0.19 million of net income in the
current fiscal period, a $0.20 million increase in accounts payable and $0.20
million of depreciation and amortization.
Investing activities cash outflows included $0.1 million for the purchase of
property, plant and equipment and $0.13 million of payments related to the
acquisition of businesses. These cash outflows were partially offset by $0.13
million of proceeds from the sale of fixed assets.
Financing activities cash inflows consisted of $0.5 million from the private
placement of the Company's common stock, $0.5 million of proceeds from debt
consisting of net borrowings on the line of credit and $0.04 million from the
exercise of employee stock options. These cash inflows were partially offset by
$0.01 million for the redemption of preferred stock and $0.2 million for the
repayment of debt.
At April 30, 2004, the Corporation's backlog totaled $39.3 million ($28.1
million on fixed fee contracts and $11.2 million on time and materials or unit
price contracts).
During the three months ended April 30, 2003, the Corporation's cash increased
by $0.02 million to $0.05 million.
Cash provided by operating activities totaled $0.55 million in the three months
ended April 30, 2003. Cash inflows including $0.23 million of net income in the
current fiscal period, a $0.68 million decrease in costs and estimated earnings
in excess of billings on uncompleted contracts, a $0.43 million increase in
billings in excess of costs and estimated earnings on uncompleted contracts, a
$0.51 million increase in accrued liabilities related to the timing of payments
and $0.24 million of depreciation and amortization. These cash inflows were
partially offset by cash outflows including a $0.4 million increase in accounts
receivables and a $1.15 million decrease in accounts payable.
The increase in cash and short-term investments during the first quarter of
fiscal 2004 is attributable to the aforementioned cash inflows from operations
of $0.55 million which were partially offset by cash outflows of $0.17 million
associated with investing activities and $0.37 million of cash outflows
associated with finance activities. Investing activities cash outflows included
$0.04 million for the purchase of property, plant and equipment and a $0.13
million of payments related primarily to an acquisition completed in a prior
fiscal year. Financing activities cash outflows consisted of $0.37 million for
the repayment of debt.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The only market risk, as defined, that the Company is exposed to is interest
rate sensitivity. The interest rate on the equipment notes and revolving line of
credit fluctuate based upon changes in the prime rate. Each 1% change in the
prime rate will result in a $56,000 change in borrowing costs based upon the
balance outstanding at April 30, 2004.
ITEM 4. CONTROLS AND PROCEDURES
Based on an evaluation under the supervision and with the participation of the
Company's management, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures (as defined under the Securities Exchange Act of 1934, as amended
(Exchange Act)) were effective as of April 30, 2004 to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. There were no significant changes in the Company's internal control over
financial reporting identified in management's evaluation during the first
quarter of fiscal 2005 that have materially affected or are reasonably likely to
materially affect the Company's internal control over financial reporting.
11
12
PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the Registrant based upon information available
at this time.
ITEM 2. CHANGES IN SECURITIES AND PURCHASES OF EQUITY SECURITIES
On March 4, 2004 the Corporation closed on a private placement transaction
pursuant to which it sold 1,250,000 shares of Common Stock, (the "Shares"), to
Barron Partners, LP (the "Investor") for an aggregate purchase price of
$500,000. In addition, the Corporation issued two warrants to the Investor
exercisable for shares of its Common Stock (the "Warrants"). The Shares and the
Warrants were issued in a private placement transaction pursuant to Section 4(2)
and Regulation D under the Securities Act of 1933, as amended.
The First Warrant provides the Investor the right to purchase up to 1,500,000
shares of the Corporation's Common Stock. The First Warrant has an exercise
price of $0.80 per share resulting in proceeds of $1,200,000 to the Company upon
its full exercise and expires five years from the date of issuance. The
Corporation may require the Investor to exercise the First Warrant in full at
any time until December 4, 2005, if the average price of the Corporation's
Common Stock exceeds $1.20 for ten consecutive trading days and the Corporation
has a Registration Statement effective during the same ten consecutive trading
days. The warrant holder may exercise through a cashless net exercise procedure
after March 4, 2005 if the shares underlying the warrant are either not subject
to an effective registration statement or, if subject to a registration
statement, during a suspension of the registration statement.
The Second Warrant provides the Investor the right to purchase up to 2,000,000
shares of the Corporation's Common Stock. The Second Warrant has an exercise
price of $1.60 per share resulting in proceeds of $3,200,000 to the Corporation
upon its full exercise and expires five years from the date of issuance. The
Corporation may require the Investor to exercise the Second Warrant in full at
any time until December 4, 2005 if the average price of the Corporation's Common
Stock exceeds $2.40 for ten consecutive trading days and the Corporation has a
Registration Statement effective during the same ten consecutive trading days.
The warrant holder may exercise through a cashless net exercise procedure after
March 4, 2005 if the shares underlying the warrant are either not subject to an
effective registration statement or, if subject to a registration statement,
during a suspension of the registration statement.
In connection with these transactions, the Corporation and the Investor entered
into a Registration Rights Agreement. Under this agreement, the Corporation is
required to file within ninety (90) days of closing a registration statement
with the U.S. Securities and Exchange Commission for the purpose of registering
the resale of the Shares and the shares of Common Stock underlying the Warrants.
The Company expects that the registration statement will be declared effective
by the U.S. Securities and Exchange Commission in June 2004.
The Corporation intends to utilize the proceeds from the sale of its Common
Stock for general business purposes and to fund its acquisition strategy.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX PAGES OF SEQUENTIAL
EXHIBIT NO. AND DESCRIPTION NUMBERING SYSTEM
Exhibit 31 Certification Pursuant to Rule 13a-14(a) of the Securities Act of
1934, as amended, and Section 302 Of The Sarbanes-Oxley Act of
2002
13
Exhibit 32 Certification Pursuant To 18 U.S.C. Section 1350, As Amended
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended April 30, 2004 except for the following:
Form 8-K filed March 12, 2004 containing an Item 5 - Other Events to disclose
the closing on a private placement transaction with Barron Partners, LP.
Form 8-K filed April 26, 2004 containing an Item 12 - Results of Operation and
Financial Condition discussing the Company's earnings for the quarter and year
ending January 31, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/John C. Regan
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John C. Regan
Chairman, Chief Executive Officer and Chief
Financial Officer
Date: June 14, 2004
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